“The team was recently visible advising on a number of pharmaceutical cases. Sources agree that the team is “moving in the right direction” and are particularly impressed by its work in the pharmaceutical sector”.

How Shall Martial Law Affect the Rights of Bank Depositors?

How may the rights of bank depositors and debtors be limited should martial law be imposed in Ukraine? What will happen to the deposits?

The Law of Ukraine “On legal regime of martial law” as of April 06, 2000 does not contain any special provisions related to functioning of the banking system and, in particular, to limitation of the bank’s depositors and debtors following introduction of the martial law.

In this context applied can be the general provisions of the Law of Ukraine “On transfer, compulsory acquisition or confiscation of property under the legal regime of martial law or state of emergency”, as of May 17, 2012 related to the possibility of removal of the companies’ property required for defense purposes as well as expropriation of property owned by legal and individual persons for the needs of defense.

For a long period of time under review was a draft law “On the financial system of Ukraine in the special period” stipulating for sufficiently stringent measures in case of imposing the martial law.

Such draft law, in particular, stipulated that in case of introduction of martial law and a moratorium on settlement of bank deposits the monetary assets of the customers kept on deposit accounts at the banks, as well as the assets of nonbank financial institutions owned by individual persons and/or which were taken out from individuals on a repayable basis can be used to meet the needs of the state in financial resources during the special period through crediting their part, size of which is determined by the Cabinet of Ministers of Ukraine, to the state budget of Ukraine.

The money engaged in such method will be included into the national debt which is formalized in the form of the Government securities transferred to the owners of such monetary assets. Commitments under such securities will be executed by the state after expiration of the special period at the expense of the State budget according to conditions specified in these securities.

In fact, it will constitute a compulsory loan provided to the state for defense needs and no one can say when and how such loan will be repaid. In addition, stipulated were the restrictions related to settlement of interest and repayment of funds from the deposit accounts of individuals for the duration of the special period (moratorium on settlement of bank deposits).

Despite the fact that the Government’s Committee for Economic Development and European Integration rejected the mentioned draft law as the one that “discredits the Government” the compulsory withdrawal of bank deposits “for the needs of the army” in the nearest future can not be ruled out.

Imposing a martial law in Ukraine will also allow the banks and their clients to cancel the previous loan and deposit agreements with reference to the abovementioned force-majeure circumstance.